NATIONALITY OF A CORPORATION FOREIGN OWNERSHIP IS LIMITED BY MANDATE OF THE

CONSTITUTION AND SPECIFIC LAWS( NATIONALIZED).

Gen Rule: The country where the corporation was
incorporated determines the nationality of a corporation
(Domiciliary Test) Corporations with No Foreign Equity:
1.mass media except recording
Foreign corporations classified under the domiciliary test are 2.retail enterprise with paid up capital of less than $2500000.
subject to the laws of the country of their creation on the ff 3.private security agencies
matters: 4.small scale mining
1.creation,formation, organization or dissolution of corporations 5.utilization of marine resources in archipelagic waters, territorial
2.relations, liabilities, responsibilities and duties of members, sea and exclusive economic zone.
stockholders or officers of corporation to each other or to the 6.ownerhip, repair ,stockpiling and distribution of nuclear weapons
corporation. 7.manufacture , repair ,stockpiling and distribution of biological
chemical and radiological weapons and anti-personal mines
In times of war or national emergency , the control test is used, 8.manufacture of firecrackers and other pyrotechnic devices
whereby if the controlling stock of a corporation is owned by 9.rural banks except shareholdings of corporations organized
citizens of a particular country which is at war with the Philippines primarily to hold equities in rural banks and of Filipino-controlled
then that corporation although organized in the Philippines is a domestic banks.
foreign corporation.

Upto 60% Foreign Equity

a.financing companies regulated by SEC
b.investment houses regulated by SEC
FOREIGN OWNERSHIP IS LIMITED FOR REASONS OF SECURITY
,DEFENSE, RISK TO HEALTH AND MORALS AND PROTECTION OF
SMALL-AND-MEDIUM SCALE ENTERPRISES:
Upto 40% Foreign Equity
Upto 40% Foreign Equity: a.exploration, development and utilization of natural resources
b.ownership of private lands
a. manufacture ,repair ,storage and distribution of c.operation and management of public utilities
products and ingredients requiring PNP clearance d.ownership/establishment and administration of educational
institutions
b. manufacture, repair, storage and distribution of e.culture, production, milling, processing, trading except retail of
products requiring Dept of National Defense clearance rice and corn and acquiring by barter or purchase of rice and corn
and by products thereof.
c. manufacture and distribution of dangerous drugs f. contracts for the supply of materials , goods and commodities to
GOCCs.
d. sauna and steam bathhouses, massage clinics and other g.project proponent and facility operator of a BOT project
like activities regulated by law due to risk posed to requiring a public utilities franchise
public health and morals h.operation of deep sea commercial fishing vessel
e. all forms of gambling
2006 notes:if foreigner become head of board of directors of
f. domestic market enterprises with paid in capital of less logging company(exploitation of resources)it is possible, as long as
than the equivalent of $200,000. share must not exceed 40%.
g. domestic market enterprise which involve advanced
technology or employ at least 50% direct employees
with paid in equity capital of less than the equivalent of
$100,000. Upto 30% Foreign Equity
a.advertising

2005 notes: there is no law prohibiting a foreigner from becoming b.domestic banks except where new bank is established as a result
a stockholder and consequently from becoming a director of a of
corporation engaged in the lumber business, irrespective of -local incorporation of any of the existing branches or agencies of
whether the lumber utilized is taken from private forest lands or foreign banks in the Philippines pursuant to sec 68 of General
from timber lands of the public domain, provided that in the latter Banking Act
case, at least 60% of the capital of said corporation is owned by -consolidation of existing banks in any of which there are foreign
Filipinos. Corporation cannot however engage in retailing of owned voting stock at time of consolidation
lumber.

4Blue 95 notes:A corp composed entirely of aliens may be Upto 25% Foreign Equity:
organized in the Philippines.The corp law only requires a majority a.private recruitment ,whether local or overseas employment
of the incorporators to be residents not necessarily citizens of the b.contracts for the construction and repair of locally-funded public
Philippines.However,in nationalized corporations works except:
(retail,agriculture, mining,tranpo and shipping)no aliens or some -infrastructure/development projects covered by RA 7718
but not all can form the corporation depending on its percentage -contracts for construction of defense-related structure
control. -projects which are foreign funded or assisted and required to
undergo international competitive bidding
2006 notes:Foreign corp can secure lease of lands but cannot own
it.They can acquire stock solely for investment but not to exercise Upto 20% Foreign Equity:
control. Private radio communication network
CLASSIFICATIONS OF A CORPORATION 8 CLASSIFICATIONS OF PRIVATE CORPORATION:

General classification of corporation is into Public and Private.

1.Stock Corporation
a.as to organizers: Capital stock divided into shares and are authorized to distribute
Public-by state only profits on the basis of the shares thus held.
Private-by private persons alone or with the state
a.Par value is where latter is stated in the articles and which value
b.as to functions: remains generally unchangeable.
Public-governmental and other public functions b.No Par value are those which have stocks where the issue
Private-private, usually for profit making value ,which changes from time to time, is left to the discretion of
the corporation to determine.jt may be issued at different prices.
c.governing law
Public-special laws (with original charter) 2005 notes: A holder of one share of no par value stock is entitled
Private-law of Private Corporations to the same rights as another holder of one share of par value stock
irrespective of the difference in issue values of the two shares.
2005 notes: when articles or by-laws are silent, the corporation is
4Blue 95 notes: by engaging in a particular business through the deemed to have the power to declare dividends.
instrumentality of a corporation, the government divest itself pro 2005 notes: prohibition in its articles that at dissolution the assets
hac vice of its sovereign character, so as to render the corporation of the corporation shall be given to a charitable corporation does
subject to the rules of law governing private corporations. not prohibit the corporation from declaring dividends before
-- when government enters into a commercial business, it abandons dissolution.
its sovereign capacity and is to be treated like any private
corporation so as to render the corporation subject to the rules of
law governing private corporations.
-- it therefore cannot invoke immunity from suit.
2.Non Stock Corporation
Corporation organized for non profit purposes, and primarily for
4Blue 95 notes: GOCC have personality of their own, separate and charitable ,religious, educational ,fraternal etc..
distinct from the government and their funds although considered 2006 notes:di pwede ang stock and profit (like manufacture soap
to be public in character are not exempt from garnishment (PNB v and sell it ,di yan pwede pag non stock corporation)
Pabalan)

3.Aggregate and Sole

There are distinctions between a corporation going public Aggregate are those with incorporators not less than 5 nor more
and a corporation going private than 15 in stock corp or up to more than 15 in non-stock
corporations
1.corporation going public allows its stocks to be issued to person Corporation sole is a special form of corporation associated with
other than its registered stockholders the clergy consisting of one person only and his successors to give
Going private restricts the issue of its stocks to its registered him some legal capacities and advantages for and in behalf of the
stockholders only, and prevents transfers by stockholders of their church represented by him.
stocks without first giving the corporation and its stockholders the
first opportunity of acquiring the same. 4.Ecclesiastical and Lay
In Lay, it is divided into civil (organized for profit) and
2.going public may allow its stock to be sold in stock exchanges, eleemosynary which is a non religious corporation organized for
going private may not allow its stock already issued to be traded in charitable purposes.
stock exchanges/
5.Domestic and Foreign
3.articles of incorporation and by laws of a corporation going
private usually contains right of first refusal clause giving corp and
its stockholders preference as against non-stockholders in the 6.De Jure, De Facto, by Estoppel & by Prescription
acquisition of stocks. The articles and or by laws of a corporation Prescription is recognize by immemorial usage as a corp though
going public would not contain the right of first refusal. not lawfully organized as corporation like the Roman Catholic
Archbishop of Manila before the law on corporation sole took
effect

7.Quasi-Public and Quasi-Corporation

Quasi-public is a private corp performing functions where public
has an interest(like MERALCO & PLDT) while Quasi-corp is a
New Corporation Code(NCC) classifies corporations into stock municipal society though not vested with gen powers of
and non-stock corporations. And those created by Special laws corporation is recognized as such (no charter like the BIR & AFP)
and those incorporated under the NCC.
8.Condominium Corporation
NCC under scattered sections also provides for close Private corporation organized for the construction of a building
corporations and special corporations. No mention was made with complete living or office units which it sells creating full
of public corporation. ownership for the buyers of the units thus sold, and a co-ownership
over the land and other portions of the building used in common by
the unit buyers.
SPECIAL CORPORATIONS 3.RELIGIOUS CORPORATIONS

1.EDUCATIONAL CORPORATIONS There are three (3) ways by which a religious organization can
provide for the administration of its properties:
For educational corporations, where the trustees should be divided 1. by forming a non-stock corporation
into multiples of five. So you should have five, ten, or fifteen 2. by corporation sole
trustees if they are organized as non-stock corporation. And unless 3. by religious aggregate or society
otherwise provided in the articles of incorporation or by-laws, the
terms of the trustees should be five years, and every year only one
fifth (1/5) is elected, again to provide for continuity in policies. But
you can provide that they will all be elected instead for a term of Corporation sole may constitute of one person only so the head of
one year, so every year, everybody has to be elected. a religious sect would incorporate himself for the purpose of
administering the properties of a religious sect. To incorporate
what you will file with the SEC is an affidavit. The affidavit will
state that the affiant is the head of a religious denomination or sect
and would want to become a corporation sole. and the rules of his
religion allow him to incorporate as a corporation sole and that he
is charged with the administration of its properties and in fact he
will be required to submit an inventory and the manner in which
the successor will be chosen and the place where he will hold his
office.

The Roman Catholic Archbishop of Manila is a corporation sole so

if Cardinal Sin dies the new archbishop will simply submit his
2.CLOSE CORPORATIONS appointment and he need not incorporate again because the
corporation is different from the occupant of the position. The
It is one whose articles provides : Iglesia ni Kristo is incorporated as a corporation sole.

a.that its shares shall not be held by a group of more than 20 The court has held in Roman Catholic Apostolic Adm. of Davao,
persons Inc. v. Land Registration Commission that although the Bishop
b.all of the issued stocks shall be subject to one or more was a foreigner, he could register a parcel of land in his name
restrictions on transfer because he is a mere administrator the property really belongs to
c.corporation shall not list in any stock exchange or make public the faithful and since they are Filipinos they could register the land
offering of any of its stocks in the administrators name .

Under the law if a corporation sole wants to dispose of or mortgage

real property, he has to get authorization from the Regional Trial
Court unless the rules of the religious sect allow him to dispose of
If at least 2/3 of the voting stock of the above corporations is or mortgage real property and that is usually the case.
owned or controlled by another corporation which is not a close
corporation, then the above corporation shall not be deemed a The last is the religious aggregate or religious society. It can
close corporation. incorporate for the purpose of managing its properties and the
articles would indicate that the members constitute a religious
4blue 95 notes: In a close corporation, the restriction as to the order or society and that at least 2/3 of the members have agreed to
transfer of shares has to be annotated in the articles of incorporate, that the rules allow them to incorporate they desire to
incorporation ,the by-laws and the certificate of stock. This serves incorporate to manage their properties in the place where located.
as notice to the person dealing with such shares ,as such, the The recollects are incorporated to manage their properties, they are
person is bound by the pricing stated in the by laws. the single biggest bloc of stockholder of San Miguel Corporation.

2006 notes:the test of nationality in corporation sole is not the

nationality of the head in a corporation sole,but the nationality of
the congregation, as such, even if foreigner is the head, if the
whole congregation are Filipinos, then the nationality is that of a
Filipino.
4.CORPORATION BY ESTOPPEL
A de facto corporation is one that is defectively created so as not to
It is a corp, which is a group of a persons, which is so defectively become a de jure corporation. It is the result of an attempt to
formed so that it is not a de jure or a de facto corp but is considered incorporate under an existing law coupled with the exercise of
as a corp with respect to those who cannot deny its existence corporate powers.
because of some agreement or admission or conduct on their part.
(while a dejure on the other hand is a corporation formed with all
This doctrine requires that there must be dealings among the of the requirements of law)
parties on a corporate basis.
The existence of a de facto corporation can only be attacked
And there are differences between a de facto corp and a corp by directly by the state through quo warranto proceedings. If the
estoppel. A de facto corp has a real existence in law, while a corp corporation does not qualify as a de facto corporation, its existence
by estoppel has none. A de facto corp may exist even if there are may be attacked collaterally. This doctrine is based on public
no dealings among parties on a corporate basis. In corps by policy to ensure stability in business transactions.
estoppel, dealings on a corporate basis among the parties involved
are required. Also, where not all requisites for corp de facto are 4blue 95 notes: a corporation was created by special law, later, the
present, you can have corp by estoppel. law creating it was declared invalid. May such corporation claim to
be a de facto corporation? No, a private corporation may be
2006 notes: The principle of estoppel can be invoked by the victim created only under the corporation code. Only public corporation
but not by the corporation as duly organized as against the victim may be created under a special law.
of said misrepresentation.
2006 notes:where private corporation is created under a special law
Christian Childrens Fund Case ,there is no attempt at a valid incorporation, such cannot claim a de
There was a teacher hired by the CCF, which was unincorporated. facto status.
She wanted to go after the one with money, the organization that
was funding CCF, and she was claiming Im an employee of that 2006 notes: where a person convinces others to form a corporation,
org and not the CCF. But the court said that since she accepted which however was not formed at all, the parties are partners inter
employment with CCF, she was estopped from claiming that CCF se and are governed by the law on Partnerships .the relationship is
is not a corp. not that of a de facto corporation.

2006 notes:the people who represented themselves as forming that

corp would be liable as general partners, they will be solidarily (BAR) 7 persons form a corporation by registering their articles of
liable. Thats why in one case the court said the people who incorporation with SEC. but after the certificate of incorporation
represented themselves as the officers of a corporation that is really has been issued ,it is discovered that only 5 of the 7 have
an unincorporated org they were illegally recruiting persons the acknowledged the articles of incorporation before a notary public.
court said they were liable as general partners, solidarily liable for HELD: It is a de facto corporation , although defectively formed
all claims. ,it may nevertheless exercise corporate powers validly until the
state dissolves it by quo warranto proceedings.

4 REQUISITES OF A DE FACTO CORPORATION:

1.Valid law under which the corporation was incorporated.

Attempt in good faith form a corporation according to the
requirements of the law. Here the SC requires that you must have
filed with the SEC articles of incorporation and gotten the
certificate with the blue ribbon and gold seal. For instance the
majority of the directors are not residents of the Philippines or the
statement regarding the paid up capital stock is not true, those are
defects that may make the corporation de facto.

2.User of corporate powers. The corporation must have

performed acts which are peculiar to a corporation like entering
into a subscription agreement, adopting by-laws, electing directors.

3.It must act in good faith. So the moment, for example, there is
a decision declaring the corporation was not validly created, it can
no longer claim good faith.

4.A de facto corporation will incur the same obligations, have

the same powers and rights as a de jure corporation. It can
acquire property, sue or be sued, enter into contracts. Likewise,
the officers, directors, and stockholders will have the same rights,
powers, and liabilities as those of a de jure corporation.
5. DE FACTO CORPORATIONS 6.FOREIGN CORPORATIONS
 The Foreign Investment Act and its implementing regulations
define what is doing business. It includes:
Section 123 defines what is a foreign corporation, one formed, Soliciting orders. When we talk of soliciting orders we
organized, or existing under any laws other than those of the mean negotiations of the specific terms and conditions
Philippines and whose laws allow Filipino citizens and of the contract. If you just advertise, that is not doing
corporations to do business in its own country or state. Note the business.
element of reciprocity is included in the definition of a foreign
corporation as an ingredient of a foreign corporation. Opening offices
Appointing representatives or distributors
Operating under full control of the foreign corporation
There are different ways by which a foreign corporation can
establish its presence here. one is by setting a branch office, Domiciled in the Philippines or who in any calendar
another is by setting up subsidiary, for tax purposes there are no year stay in the Philippines for at least 180 days
trade-offs because a branch and a subsidiary are taxed in the same Participating in the management, supervision or
way but a subsidiary may be beneficial in the sense that it limits control of any domestic corporate entity
the exposure of the mother company to its subscription instead of Any other acts that involve continuity of commercial
risking all the assets of the mother company. Another is the dealings, and
regional headquarters which does not do business, it is just a
coordinating and communication center. Foreign companies are Performance of acts or functions incident to or in
setting up regional headquarters here because it has subsidiaries in progressive prosecution of commercial gain
Southeast Asia or licensees and franchisees and its function is to
supervise and coordinate with those subsidiaries or franchisees so The rules also state certain acts which do not constitute doing
normally a regional headquarters would have a one room office business like:
here probably with country manager and secretary, a telephone, Mere investment in a domestic corporation. This
computer and fax machine. repudiates the ruling in the Granger case where Justice
Cruz said that being a mere investor is doing business.
If a foreign corporation wants to do business here it has to appoint That is wrong. It could have been just a passive
a resident agent who may be a corporation, partnership or investment. So that decision is being repudiated here.
individual, if individual he must be of good moral character, sound Having a director to represent you in a corporation
financial standing, although his only function is to receive because of your investment.
summonses in behalf of the corporation.
Appointing a representative distributor which transacts
If a foreign corporation is being sued, the summons must be served business in the distributors own name. The usual
on the resident agent. The corporation is also required to file with distributorship agreement will contain a provision
the SEC a power of attorney or resolution which says that if it has something like this, The relationship between the
no resident agent it agrees that the summons be served with the parties is that of seller and buyer. This means that the
SEC which will forward the summons and the complaint to the local distributor has to pay for the goods he purchased
foreign corporation. If no resident agent and any officer who will irrespective of whether he is able to resell them or not.
be in the Philippines may be served with summons. And it is up to him to sell them for whatever price he
can get. Now if the distributor is transacting business
Section 133 says that if the foreign corporation will be doing not in his own name, but as agent of the foreign
business without a license it cannot sue or intervene in any action corporation, then the foreign corporation will be doing
in court or administrative agency. business. This is what happened to BMW. They have a
distributor here but if somebody wants to buy a car, the
The SC had said that if a foreign corporation is doing business here distributor will merely forward the order to BMW in
without a license, a contract it entered into is valid, it is not Bavaria and he will send the payment to BMW in
rendered void so the court said the legislature made a judgment Bavaria and BMW in Bavaria will ship the car to him.
call that imposing penal sanctions and denying access to the courts So the court said that BMW was actually doing
are sufficient penalties for doing business without a license. The business here, because the agent was dealing with
legislature did not provide that the contract it entered into is void. customers in the name of BMW.
Although the foreign corporation did not have license to do Publication of advertisement. Like the advertisement in
business when it entered into in that contract, it could sue if later magazines which are sold here.
on it acquired a license to do business. Maintaining stock of goods to have them processed like
this garment business in the United States which send
(BAR) If a foreign corporation which has been licensed to do their textiles to be processed into dresses which are then
business in the Philippines by the BOI and SEC ,wants to expand shipped back to United States or components for
its business activities in the Philippines, is further approval from electronic products which are sent here to be processed
the BOI necessary? and sent back to Silicon Valley.
HELD: Board of Investments (BOI) approval of the expansion of
business of a foreign corporation already licensed on or before the Consignment of the equipment to be used in processing
effectivity date of the foreign investments law(1968) to engage in the products for export. So that if the foreign company
business is not necessary. BOI approval is needed only in sends its equipment to be used by the local processor,
situations where foreign enterprise desires to exceed the permitted that is not doing business.
percentage of equity of its investments under the Foreign Gathering information about the Philippines
Investments Law. Performing service auxiliary to an isolated contract not
in a continuing basis such as installing in the
Philippines machinery, servicing the same, and training
workers to operate it.
2006 notes: Consequences on Foreign corporations engaging in IMPORTANT RULES:
business in the Philippines without license :
(1) it shall not be permitted to transact business in the
Philippines
(2) it cannot sue, but it can be sued. GRANDFATHER RULE

Contract Test- foreign corporation not doing business in RP and The test being used here is the nationality/ citizenship of the
entered into contract w/ a domestic corporation whereby the stockholders. According to the formula under the grandfather rule,
perfection and consummation was done outside, the same would if you have a corporation owned by another corporation, you trace
not constitute doing business in RP. who are the owners of this owning corp.
In other words, if a company is 60% Filipino and such 60% is
acquired by company w/c is 50%fil & 50% foreign, so it is 30%
When Unlicensed Foreign Corporation can sue: Filipino (60 x 50%); but if it the acquiring company is 60%
Filipino, so since lampas 50 then the whole 60% of the acquired
1. corporation not doing business in the Philippines can bring corporation is Filipino
suits on isolated acts, If it can sue, it can likewise be sued.
-- if a foreign corporation not engaged in business is not barred to 2006 notes: in JG Summit v CA (2005 case)- the stockholders are
seek redress from Philippine courts, with more reason can said not limited to transfer their shares to another even if it is a
corporation not claim exemption from being sued in Philippine foreigner, such limitation only apply to the corporation.
courts. An illustration is that you can sell your 60% shares to foreign
corporation which would not violate the 60-40 rule, the only effect
Isolated transactions means a series of transactions set apart form of such undertaking is that such foreign corporation cannot acquire
the common business of a foreign enterprise in the sense that there real property.
is no intention to engage in a progressive pursuit of the purpose
and object of the business organization.
The fact that a foreign corporation does not do business here,that is 4blue 95 notes: However, the Foreign Investment Act has
a matter that should be ventilated in the trial on the merits but not disregarded the grandfather rule. It adopted the liberalized
in a motion to dismiss. interpretation of Filipino-ownership.

2.action to protect good name ,good will and reputation of

foreign corporation

3.where contract provides Philippine court as venue for

controversies

4.license subsequently granted enables foreign corporation to

sue on contracts executed before grant of license

5.recovery of misdelivered property

ONE MAN CORPORATION
6.where the unlicensed foreign corporation has domestic
corporation as co-plaintiff 2006 notes: A one man corporation is a corporate entity where one
person holds directly or indirectly all or substantially all of the
7.estoppel stocks of the corporations.
-- this form of corporation enjoys all the attributed of a corporation
although it always faces the risk of its corporate existence being
attacked of said corporate fiction is utilized for unlawful pruposes.
-- to assure that corporation will continue to enjoy the attributes,
the corporation should have a duly constituted board which should
meet regularly to pass upon the problems of the corporation. The
stockholder who holds substantial stocks should consider his
holdings as merely for investment purposes.

Acquisition by Philippine courts of Jurisdiction over Foreign

Corporation

1. by serving upon the resident agent designated in accordance

with law to accept service of summons
when corporation designated a person to receive service
of summon pursuant to corporation code, that 2006 notes: in concession theorythe state concedes that youre a
designation is exclusive and service of summons on person (the corp) and once it is created, it should be for public
other person is inefficacious. purpose.
As such, congress cannot enact law creating private corp with
2.it there is not resident agent ,by service on the government special charter.
official designated by law (like the SEC) All waterworks are public corp, exception to such is a de facto
corporation where it failed to comply in a fatal matter resulting to a
3.by serving on any officer or agent of said corporation without the fatal defect but once a special law is enacted ,it is not anymore a
Philippines. defacto corp